When Using the Net Present Value Method for Evaluating an Investment,an

question 19

Multiple Choice

When using the net present value method for evaluating an investment,an increase in the required rate of return will:

• A)Make it more difficult to accept the investment.
• B)Make it less difficult to accept the investment.
• C)Not affect the decision,if the length of the investment's benefits remain constant.
• D)Not be a consideration because it is not used in the net present value method.

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Definitions:

Long Run

An economic term for a timeframe in which all factors of production and costs are variable, allowing for full adjustment to changes.

Nominal Growth Rate

The rate at which an economy or financial metric grows over time, including inflation, without adjusting for the latter.

Inflation Rate

The percentage increase in the price level of goods and services in an economy over a period of time, reflecting the purchasing power of currency.

Government Deficit

Government Deficit occurs when a government's expenditures exceed its revenues within a specific fiscal period, leading to borrowing or using saved reserves.